Nothing changes behaviour more than a crisis

'The Covid-19 global pandemic stopped the construction sector in its tracks' says Annette Hughes, Director, EY-DKM Economic Advisory Services.

25th September, 2020
Nothing changes behaviour more than a crisis

Annette Hughes, Director, EY-DKM Economic Advisory Services, the economic consultancy division on the island of Ireland for EY.

What are your day to day responsibilities?

My day to day responsibilities are focused on the provision of economic consultancy services to public and private sector clients, focusing primarily on housing, construction, student accommodation and urban/regional development.

The services we offer comprise market analysis and foresights, policy advice, economic impact assessment, urban and regional socio-economic analysis and profiling, the preparation of business cases, construction and housing projections, economic modelling and scenario planning.

I am the Irish member of Euroconstruct, a network of research and consulting companies across 19 countries in Europe that provides bi-annual and consistent medium-term forecasts for the economy and all main construction sectors.

What is your professional background?

I am an economist and a graduate of UCC, with almost three decades of experience in economic consulting across a range of broad sectors of the Irish economy.

Prior to joining EY, I previously co-managed DKM Economic Consultants as an independent economic consultancy for twelve years, before it was acquired by EY in January 2018. I previously had worked as a Director of DKM, which was originally part of Davy.

Following university, I joined the Irish subsidiary of British Petroleum as an Economist in the energy sector. I subsequently joined leading UK contractor, civil engineer, housebuilder and property developer, John Laing PLC, as an Economist/Strategic Planner, principally responsible for monitoring activity in the UK and US housing markets and researching new business development opportunities for the Group.

How do you think the industry is coping with the Covid-19 crisis? What lasting impact do you see on the sector?

The Covid-19 global pandemic stopped the construction sector in its tracks, with all construction sites closed for 7 weeks on 28 March, apart from around 35 social housing sites which were deemed essential. The sector employed almost 150,000 directly at end of 2019, with many more employed in the supply chain, and most would have applied immediately for some form of income support under the pandemic payments introduced by Government at the time. By end of June, the sector had lost around 20,000 jobs.

The reopening of construction sites on 18 May was challenging to begin with, as public safety measures, social distancing and staff training had to be put in place, while many questions were raised about the impact of Covid-19 on costs, supply chains, project timelines and productivity.

Over recent months, it has become evident that the industry has performed better than expected. Albeit still negative, overall investment in building and construction declined by 39.6% in the quarter and by 35.4% year-on-year in Q2 2020. This was significantly better than expected and led to upward revisions to the industry’s prospects in 2020.

However, there is no room for complacency and how the industry copes with the Covid-19 crisis will very much depend on the public sector response over the next twelve months. With the private sector likely to be cautious about starting new projects, it is critical that Government fast forward its capital commitments to provide confidence to the sector. There needs to be visibility on the sectoral/regional breakdown of funding of infrastructure to ensure construction project can commence over the next 6 to 12 months. If this materialises, construction can play an important role in the economic recovery, as recent research by EY-DKM has found that the economic returns from construction investment are significant with every €1m of investment generating €0.68m in wages and profits and 12 full-time equivalent jobs across the economy.

How do you see tech innovation transforming this industry? What do you think will be the major breakthroughs over the next 5–10 years?

It is stated that nothing changes behaviour more than a crisis. The COVID-19 pandemic has already prompted global construction companies to fundamentally change how they do things. They are experimenting with a variety of tools and technologies, initially focused on workers’ health and safety. Many of these technologies are generating data which, using artificial intelligence analytics, can deliver improved safety and an improved ability to remotely manage workers on site.

The Building Innovation report published by the Construction Sector Group identified three high impact actions to be undertaken in order to increase innovation and output in the Irish construction sector over the coming years:

•Investment in innovation and digital adoption

•Ongoing regulatory reform to support the industry

•Increased certainty and visibility of the pipeline of construction opportunities which will allow the industry to invest in its capacity with a greater degree of confidence.

Implementation of these actions will require funding to be made available from the Government’s gross domestic expenditure budget for research and development (R&D). Our research suggests that the total Government expenditure on construction R&D should be around €500m per annum. If there are to be major breakthroughs over the next 5-10 years on transforming the industry, there also needs to be a strong collaborative effort between the construction industry, Government institutions and the higher education sector to ensure progress on this transformation.

What will be the leading trends in the construction industry in coming years and how will businesses need to adapt?

The leading trends which I understand are transforming the global construction industry are prefabrication and modular construction, 3D printing and robotics.

Prefabrication or industrialised construction reduces labour on site as modules are produced in a factory and then shipped to the site location. McKinsey has reported that industrialised construction can cut costs by up to 20% while in other industry surveys 79% of contractors highlighted reduced waste and 71% highlighted improved safety as key benefits. An estimated 80% of contractors using industrialised construction also reported lower accident rates than on-site construction.

3D printing, as a technology, is in its infancy but can potentially reduce construction time and cost as well as the environmental impact, while facilitating complex designs that might otherwise be unattainable. While robotics have been used for decades in the likes of manufacturing, they can substantially increase productivity and safety on construction sites.

Progress towards these trends will require firms to develop new strategies, focusing their resources on technologies such as digital adoption to ensure their businesses remain competitive and unlock new ideas and processes.

Trends which are expected to continue in the coming years are sustainability and climate change. The European Commission’s new target to increase the 2030 target for emissions reductions to at least 55% from 40% will require the construction sector to continue to play its part. Towards this end, firms will need to fully adopt circular economy principles to reduce waste and increase the reuse of materials on construction projects.

Annette will be speaking at the 2020 CIF Annual Conference on October 1st, Online

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